United States District Court, D. Kansas
TST TRUCK INSURANCE, LTD., TST, LTD., and ANDREW B. AUDET, Plaintiffs,
FIRST NATIONAL BANK OF WAMEGO, et al., Defendants.
MEMORANDUM AND ORDER
SAM A. CROW, Senior District Judge.
This case comes before the court on remand from the Tenth Circuit. The parties have fully briefed the remaining issues and the court is prepared to rule on the pending motions for summary judgment in accordance with the mandate. The relevant facts are included in prior orders and decisions by this court and the Tenth Circuit and will not be repeated herein except as necessary to the analysis.
I. Breach of Contract by TST
The Court first examines whether Wamego has established that TST breached its contract, as alleged in Wamego's counterclaim.
TST does not dispute the facts establishing that it has breached its contract by not repaying the loan, when due. Those facts show that the Loan Agreement was a valid written contract, that Wamego performed its obligations under that contract, and that TST has not made any payments on its loan since November of 2009 at which time the loan balance was $6, 761, 434.62. TST does not dispute the facts supporting Wamego's calculation of interest on that balance in the amount of $1, 435.65 per day.
Nonetheless, TST alleges that summary judgment is not warranted on Wamego's breach of contract counterclaim because: 1) Wamego failed to adequately refute TST's defense to that counterclaim; 2) the law of the case doctrine prevents Wamego from enforcing TST's obligations to other participating lenders; and 3) Wamego's own damages are barred or reduced by the "intentional misconduct" clause in the Loan Agreement. TST also opposes Wamego's enforcement of a contractual attorneys' fees clause. These issues are addressed below.
II. Alleged Procedural Failure
TST initially alleges that Wamego has not met its burden to disprove TST's affirmative defense because Wamego has "hardly addressed the issue" in its brief. Wamego replies that it met its burden of so doing by stating four reasons why TST's defense of intentional misconduct could not succeed, based on controlling authority and the record. The Court agrees that Wamego has squarely addressed this issue. See Dk. 149 at 19-21. Thus no procedural failing bars Wamego from prevailing on its counterclaim.
III. Other Participating Lenders
Wamego seeks summary judgment not only on behalf of itself but also on behalf of other participants in Loan #5483. TST asserts that the law of the case doctrine prevents Wamego from enforcing TST's obligations to other participating lenders.
The law of the case doctrine "posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case." Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983). "Law of the case principles apply only to decisions on the actual merits." Kennedy v. Lubar, 273 F.3d 1293, 1299 (10th Cir. 2001) (emphasis added). "[O]nly matters actually decided, explicitly or implicitly, become law of the case, " and it is therefore "important to reconstruct the pertinent circumstances surrounding and informing this court's previous decision[s]." Wilmer v. Bd. of Cnty. Comm'rs, 69 F.3d 406, 409 (10th Cir. 1995). See Huffman v. Saul Holdings Ltd. Partnership, 262 F.3d 1128, 1132 (10th Cir. 2001).
TST's argument has facial appeal. This Court's order dated August 3, 2011 ruled that Wamego's role as loan administrator did not give Wamego a right to enforce the Loan. Dk. 102, p. 27-28. Wamego did not challenge that ruling on appeal, as the Tenth Circuit noted in its order. Dk. 143, p. 18. And the Tenth Circuit's language does not favor Wamego's right to enforce other participants' interests in the Loan. See e.g. Dk. 143, p. 12 (finding the Pennsylvania court's judgment "does not strip Wamego or other participants of its "right to protect its own interests under the contract, " and does not "eliminate Wamego's ability to... enforce TST's contractual obligations to it. ") But the posture of the case on appeal presented only Wamego's individual interests. The Tenth Circuit based Wamego's ability to enforce obligations under Loan #5483 on Wamego's standing as an intended beneficiary pursuant to the participation agreement.
Wamego counters that a judgment, once reversed or vacated by a higher court, has no validity, force or effect. This is a correct general statement of the law. See generally Butler v. Eaton, 141 U.S. 240, 244 (1891). But that proposition does not govern as to issues not altered by the higher court. More on point is the rule that a district court order must be obeyed until a higher court sets it aside. See United States v. United Mine Workers of America, 330 U.S. 258, 293 (1967) (finding "an order issued by a court with jurisdiction over the subject matter and person must be obeyed by the parties until it is reversed"). Thus parties must follow an order that is not modified or reversed by a higher court, and a lower court may enforce unappealed portions of its order, or may have reason not to.
Law of the case principles are not absolute. See Kennedy, 273 F.3d at 1299. Exceptions exist to that doctrine. See Pepper v. United States, 131 S.Ct. 1229, 1250-51 (2011); Trujillo v. Bd. of Educ. of Albuquerque Pub. Schs., 212 Fed.Appx. 760, 766 (10th Cir. 2007). The doctrine is "to be applied at the sound discretion of the court to effectuate the proper administration of justice." United States v. Gama-Bastidas, 222 F.3d 779, 785 (10th Cir. 2000) (internal quotations omitted). This doctrine "directs a court's discretion, it does not limit the tribunal's power." Arizona, 460 U.S. at 618.
The doctrine is, however, "only a rule of practice in the courts and not a limit on their power." Id. (citing Messinger v. Anderson, 225 U.S. 436, 444, 32 S.Ct. 739, 56 L.Ed. 1152 (1912)). We have recognized three "exceptionally narrow" grounds for departure from that rule of practice: "(1) when the evidence in a subsequent trial is substantially different; (2) when controlling authority has subsequently made a contrary decision of the law applicable to such issues; or (3) when the decision was clearly erroneous and would work a manifest injustice." United States v. Alvarez, 142 F.3d 1243, 1247 (10th Cir.), cert. denied, 525 U.S. 905, 119 S.Ct. 242, 142 L.Ed.2d 199 (1998) (citing Monsisvais, 946 F.2d at 117).
McIlravy v. Kerr-McGee Coal Corp., 204 F.3d 1031, 1035 (10th Cir. 2000). Accordingly, the doctrine "does not apply if the court is convinced that [its prior decision] is clearly erroneous and would work a manifest injustice.'" Agostini v. Felton, 521 U.S. 203, 236, 117 S.Ct. 1997, 138 L.Ed.2d 391 (1997) (quoting Arizona, 460 U.S., at 618, n. 8, 103 S.Ct. 1382; alteration in original).
Such is the case here. This Court's initial view of Wamego's interest, rights, and duties, from having reviewed the facts presented on summary judgment, was fundamentally narrower in scope and different in kind than is its view of those same matters now, having studied the decision of the Tenth Circuit. This Court's prior decision regarding Wamego's limited rights as an administrator, which was not appealed, was in large part intertwined with its erroneous decision regarding Wamego's rights as a third-party beneficiary, which was appealed. See e.g., Dk. 102, p. 27-30. The two roles are not totally unrelated. For example, the loan administration duties of Wamego are included in the participation agreement which the Tenth Circuit broadly construed, so must be broadly construed by this Court. Although the Tenth Circuit did not squarely address the issue of Wamego's rights as administrator, the matters which the Tenth Circuit did resolve convince this court of fundamental error in its prior conclusion regarding Wamego's rights as an administrator as well.
Further, this Court's conclusions as to Wamego's role and rights were also colored by its finding, reversed on appeal, that the Pennsylvania judgment validly rescinded the underlying Loans such that no participant or administrator could enforce them. To persist in that error would work a manifest injustice on the other participants to the loan because they would have no recourse for TST's breach of contract. Accordingly, the Court declines to apply the law of the case doctrine as to this unappealed issue.
TST does not controvert the facts set forth by Wamego which establish the following: in 2008 Aleritas transferred all of the loan administration duties to Wamego" by an agreement entitled "Assignment and Assumption of Loan Administration Duties; that contract states that Wamego "agree[d] to perform all of the loan administration duties of Aleritas, " including "receiving and applying [TST]'s payment in accordance with Sections 3 and 19" of the participants' participation agreements, as well as performing "all of the loan administration duties set forth in Section 12(A), (B), and (C)" of those participation agreements; Section 3 of those participation agreements authorized Aleritas to "receive all payments" from TST; and Section 12(A) of those participation agreements authorized Aleritas to "administer the Loan and any related security and guaranties as though it were the sole owner and holder thereof." Thus, by virtue of Aleritas's assignment of those rights, Wamego is, as a matter of law, entitled to collect TST's payments on its loan on behalf of other participants' interests in Loan #5483.
IV. Affirmative Defenses
A. Res Judicata
TST contends that Wamego's counterclaims are barred by the default judgment it received against Aleritas in the Pennsylvania state court. This court shared that view until it was squarely addressed and definitively reversed by the Tenth Circuit. That court's opinion leaves no room for this argument. See Dk. 143 at 11-12. TST has failed to raise a genuine issue of material fact that its defense of res judicata could succeed.
B. Aleritas' Intentional Misconduct
Although TST references various affirmative defenses listed in the pretrial order, these all focus upon the intentional misconduct of the Lender, Aleritas. See Dk. 70, p. 12-13. These affirmative defenses are premised on the following clause that TST and Aleritas inartfully inserted into the otherwise stock language of paragraph 6 of the CLA: " Except for liability claims based upon intentional misconduct of Lender...." The relevant paragraph which includes this clause states:
CONSENT TO LOAN PARTICIPATIONS, ETC. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of the Loan, including without limitation Lender's sale or transfer of one or more participation interests in the Loan to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without limitation whatsoever, to any one or more purchasers, potential purchasers or issuers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy Borrower may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, all notices of any repurchase of such participation interests and all notices of issuance of notes or securities which are in whole or in part collateralized by Borrower's Loan. Borrower also agrees that the issuers of notes or securities and/or purchasers of any participation interests may or will be considered as the absolute owners of such interests in the Loan and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Except for liability claims based upon intentional misconduct of Lender, Borrower further waives all rights of offset or counterclaim that it may have now or later against any issuer of notes or securities or against any purchaser of such a participation interest and unconditionally agrees that such issuer or purchaser may enforce Borrower's obligations under the Loan irrespective of the failure or insolvency of any holder of any interest in the Loan. Borrower further agrees that the issuer of such notes or securities or purchaser of any such participation interest may enforce its interest irrespective of any personal claims or defenses that Borrower may have against Lender.
Dk. 76, Exh. 4, para. 6.
1. Law of the Case Doctrine
Wamego first contends that TST's intentional misconduct defense is precluded by the Tenth Circuit's ruling establishing the law of the case, albeit while addressing a separate issue.
The Tenth Circuit found the language of the CLA, which includes this clause, to be "clear and unambiguous." Dk. 143, p. 16. The Tenth Circuit also significantly relied on this very paragraph of the CLA in finding Wamego to be an intended beneficiary of the contract, saying:
Finally, TST "agree[d] that the... purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender." Id. According to Wamego, this language clearly expresses TST's agreement to allow participants the benefit of directly enforcing TST's contractual obligations.
Dk. 143, p. 14. The Tenth Circuit agreed with Wamego's construction. After considering the entirety of the contract, the Tenth Circuit summarized its reasons for finding that Wamego was an intended beneficiary, repeating its reliance upon this provision:
TST agreed to allow the sale of participating interests, to waive notice of the sale, and to consider the participants "as the absolute owners" of their interests. (Vol. 1 at 22.) And TST "unconditionally agree[d] that such... purchaser may enforce Borrower's obligations under the Loan irrespective... of any personal claims or defenses that Borrower may have against Lender." ( Id. ) No one claims this language is ambiguous-and the benefit is obvious.
Dk. 143, p.16. Based in significant part on this unambiguous language, the Tenth Circuit found Wamego to be an intended beneficiary of the contract. Thus the crucial language is not mere dicta, but was an essential part of its ruling.
In light of these findings by the Tenth Circuit, TST's position that the Circuit made no ruling on whether paragraph 6 of the Loan Agreement precludes or limits Wamego's enforcement claim is not well taken. Although the Tenth Circuit was addressing a separate issue, its finding that "TST unconditionally agreed that such... purchaser may enforce Borrower's obligations under the Loan irrespective... of any personal claims or defenses that Borrower may have against Lender, " (Dk. 143, p. 16) necessarily defeats TST's affirmative defense. The Tenth Circuit would not violate the bounds of logic by holding that this language means one thing in the context of one argument (intended beneficiary) and does not mean that same thing in the context of another argument (intentional misconduct defense).
2. Language is Unambiguous
Alternatively, even without applying the law of the case doctrine, this Court finds the CLA to be unambiguous.
The cardinal rule of contract construction requires courts to determine the parties' intent from the four corners of an instrument by construing all provisions together and in harmony with each other rather than by critical analysis of a single or isolated provision, and reasonable rather than unreasonable interpretations are favored. [Citation omitted.] Errors in contracts, which do not create such inconsistency that the overall intent of the parties cannot be determined from the four corners of the instrument, do not result in an ambiguous contract but merely create an inconsistency subject to interpretation by the court considering the contract as a whole. [Citation omitted.]"
Starr v. Union Pacific Ry. Co.,
31 Kan.App.2d 906, 909-10, rev. denied, 276 Kan. 970 (2003). An agreement is not made ambiguous merely because the parties disagree as to its meaning. Antrim, ...